Ethics – can we merge AICPA and IFAC ethics standards?

AC504

March 10, 2013
INTRODUCTION

There are many challenges and obstacles facing the accounting profession with the convergence towards a globally accepted accounting reporting structure and a global ethics structure. Today’s economy is becoming globally smaller and more importantly the economy from all fronts is becoming more co-dependent on one another from a domestic and international perspective regarding finance, raw materials, IT, and labor talent. Some of the challenges facing the accounting profession as move towards a global standard is how do we ensure the information are reliable? Many companies in various parts of the world have different reasons/motives for how financial information is compiled and distributed due to things such as government or other political/social reasons and influences. Another large issue facing accountants would be what is acceptable in Country A may be unacceptable from an ethical standpoint to Country B. An example of this, IGAAP is less stringent than U.S. GAAP regarding certain disclosures, therefore, how will the information be disclosed in order for investors and creditors to make informed decisions. From an ethical standpoint will companies chose to use IGAAP because it is less stringent and the disclosure will be less disclosed than it is today. Finally the idea of enforceability, in certain countries, will the Commission actually have authority to hold companies accountable for misleading, fraudulent or inaccurate disclosures or unethical behavior. What jurisdictional powers will be given and will the Countries that the Companies are located in allow the Commission to prosecute the bad apples. Personally, every day from items that occur at work or at home everyone is affected by this. With the global economy becoming smaller every day we make decisions to purchase raw materials or personal goods from Companies in foreign countries based on the validity of the information that is available to us mainly through financial research using the internet or corporate filings. In the future, particularly at my job today where we do a lot of international business, a uniform accounting reporting structure would make analysis of companies easier and assuming ethical standards are also even it would make the decision to do business with them or not easier to make, and the same would hold true on the personal side as well regarding what companies are we comfortable doing business with. Today, the American Institute of Certified Public Accountants (AICPA) outlines ethical behaviors in the United States and the International Federation of Accountants (IFAC) outlines the standards for international ethical behaviors (Reference for Business). The idea of one ethics system requires an understanding of the ideas and workings of the AICPA and the IFAC as well as what similarities exist between them and then finally what the pitfalls and expenses will be of a merged ethical international standard.
AICIPA DEFINED The AICPA is a national professional association in the United States for certified public accountants (Reference for Business). The AICPA’s main goal is to provide resources to certified public accountants, set ethical standards for certified public accountants, set standards for auditors that audit private companies, non-profit organizations, federal, state and local governments and also provide enforcement of professional standards through disciplinary action against certified public accountants (Reference for Business). The approach of the AICPA is based on rules; these rules clearly define what is acceptable and what is not acceptable. Deviation from the rules requires careful thought and maneuvering to determine if ethical and business boundaries are crossed. One of the primary public outcomes that the AICPA is trying to achieve is the idea of creating public confidence along with good practicing ethical behavior with regards to certified public accountants and the accounting profession. Certified accountants play a key role in society through the services that they provide to individuals, corporations and governmental bodies (Allen, 2010). In order for public confidence to remain strong regarding certified public accountants the industry must police itself, act in an ethical manner, adhere to the laws set forth by the lawmaking bodies and maintain independence and objectivity with regards to the powers that have been granted them as certified public accountants (Allen, 2010). Members that stray from these principles will cause further harm to the profession and further creation of laws that will result in increased regulation and increased cost along with increased public distrust. The AICPA is based on a rules based system the framework and scope of performance that certified public accountants are required to adhere by (Reference for Business). The rules are intended to help its members perform in a professional and ethical manner while providing excellent service to their clients.
AICPA’s ETHICS Because everyone relies so heavily on financial figures, ethical standards are crucial to the success of our economy (Karthik, 2010). These ethical standards that are laid out are intended to provide a framework of rules to ensure that certified public accountants, companies, and governmental bodies are accurately disclosing its financials in an acceptable ethical manner. The AICPA sets forth strict rules for the profession to follow such as treating the information in a confidential manner, the accountant must have the integrity of steel along with being competent and objective (Karthik, 2010).
IFAC DEFINED The primary idea behind IFAC is to promote a global standard for business and global stand for ethical behavior for companies so that investors and creditors will be able to view and understand financial statements across global borders. The idea of IFAC extent to certified public accountants and accountants in other countries to follow an established set of rules in which they will provide users of their information reliable, comparable and understandable financial information (Allen, 2010). The primary structure of the IFAC is more principle based along with a direction toward more conceptual financial reporting (Allen, 2008). The conceptual idea is that information should be disclosed as relevant and reliable requiring accountants, companies and governments to look at all the components of the balance sheet and the disclosures that contribute to the financials as using their best judgments in applying the policies set forth by IFAC.
IFAC ETHICS The idea behind the code is to install in those practicing international accounting to adhere to basic principles. These code range from that accountants should maintain a sense of confidentiality with their client and the information that is disclosed to them, the accountant must be objective in their judgments, the accountant must always have integrity in the work they perform, the accountant must always be professional and posses the knowledge necessary to perform the work they are completing, and the accountant must adhere to the laws that are outlined and operate in an ethical manner (Allen, 2010).
COMPARISON OF AICPA AND IFAC

Truth be told there are many similarities of the AICPA and the IFAC codes. Both codes main objective is to provide ethical, competent and accurate services while servicing the client in the best possible ethical manner possible. Let’s face it, ethical behavior is very difficult to watch over since it is usually only discovered after the unethical act has taken place.
CONCLUSION

In conclusion, as our economy continues to become smaller, technology continues to get better and our accounting system in the US and globally continue to become more uniform on an international basis, yes, additional regulation is definitely needed to curb dishonest individuals and corporations from doing unlawful and unethical acts. Further, when US investors and accounting professions have more reliance on foreign company’s financials and IGAPP becomes reality in the US, we as investors and accountants have to believe and trust that the financials, the laws and the oversight of both is of the upmost integrity. Our economy is fragile, without accurate books and records along with responsible corporate ethical, moral and political behavior our financial system will crash. The movement to global ethical standards makes business harder and more restrictive from a competition standpoint, however, the fundamental basis of our economy and the trust that creditors and investors have in it is Financial Stability from good corporate ethical behavior. This stability is not earned over night; it takes years or decades to
Correct the problems and issues that are brought out by un-ethical acts and behaviors. As our ethical standards gravitates towards and internationally accepted standard, I question who, where, and what will govern the wrongdoers. Even our country which has a powerful court system along with so many different government regulators cannot even imagine how many things happen each and every day that would be considered unethical. How will we even begin to enforce the items internationally if we cannot even control the un-ethical acts happening in the United States? Along with the movement to an international system there are also some consequences, mainly cost, training employees, creating a body to oversee ethics questions or creating a body to enforce violations will be costly and very time consuming. In short, further international ethical standards are needed with more in depth thought how to mitigate the pitfalls of an international system. Ethical rules need to be defined and they need to be enforced from the one person accounting firms to the mega-accounting firms country by country with the same vigilance against wrongdoers. Rules and enforcement cannot stop there, our government and the other nations government will need to lead by example, and the scandals that have existed for years from a governmental level along with a governing body that actually has the knowledge to make good ethical rules. Those that falsify company expenses, revenues, offer/accept bribes, alter financial statements and mislead investors are to be punished the same. Ethical stability can be brought to the global marketplace and the accounting profession can be regarded as a highly educated, ethical operating group that is contributing to the success of people and society not looked upon as the ones who are hiding the money or shredding the documents after hours. Ethical stability will come at a cost when our economy is at its most vulnerable time; this cost is learning the shortcomings of the structured ethical systems.

References

Mintz, Steen, 2010, IFRS and GAAP – Inernational Accounting Standards. Retreieved from http://www.ethicssage.com/2010/12/international-accounting-standards-for-almost-40-years-a-movement-has-been-underway-to-establish-one-set-of-international-ac.html
Karthik, Naravani (2010)). Accounting Ethics. Retrieved from: http://www.buzzle.com/articles/accounting-ethics.html
Reference For Buisness (2009). American Institute of Certificed Public Accoutnants (AICPA) – Company Profile, Information, Business Description, History, Background Information on American Institute of Certified Public Accountants (AICPA). Retrieved from: http://www.referenceforbusiness.com/history2/82/American-Institute-of-Certified-Public-Accountants-AICPA.html
Allen, Catherine, (2010). Comparing the Ethics Codes: AICPA and IFAC. Retrieved from: http://www.journalofaccountancy.com/Issues/2010/Oct/20103002.htm
Lunday, Jason (2010). Typical Weaknesses of Codes of Conduct. Retrieved from: http://www.corporatecomplianceinsights.com/typical-weaknesses-of-codes-of-conduct/